platform, or makes mistakes that can’t
be fixed, or has challenges with rela­
tionships, then you need an RFP but,
long term, it will be good for everyone
if we have a great benchmarking tool
with good data.

Reish: What do you do in between
RFPs? You benchmark, but you bench­
mark data against comparably situated
plan sponsors, and that’s key. There is
a fair amount of industrywide data avail­
able through a variety of reports and
services that are either free or commer­
cial. However, most of those are indus­
trywide or at least they’re for all plans
kept by that provider.

What a plan sponsor needs to do is
look at comparable plans because it’s
got to look at the relevant information,
as pointed out by the DoL regulation.
What’s relevant for a $100 million
401(k) plan may not be the least bit
relevant for a $1 million 401(k) plan. In
fact, that’s clearly true when it comes
to issues like expenses. So, providers
need to understand what issues they
need to be looking at. They need to
gather the data for their plan about
those issues, their plan­specific data,
and then they need to compare that to
benchmarks for comparable plans.

For example, a law firm plan shouldlook a certain way. It should havecertain average account balances,certain participation rates, certaindeferral rates, and so on. A hotelplan or a shopping mall plan will havemuch smaller account balances, manymore employees who may not partici­pate. A 50% participation rate maybe moderate in the one case, 90%in the other. They’re going to needthat industry­specific data in order tobe able to help plan sponsors havesuccessful plans.Fiduciary Benchmarks

FiduciaryBenchmarksPA: Barbara, how do you usebenchmarking in your practice?

Delaney: We’ve been benchmarking
plans as part of our annual review
process. We just went through the
investment analytics part of that
process. Then, once a year, we also
do a full benchmarking. It’s been
strenuous at best. We use Fidelity’s
book, Principal’s book, the Vanguard
book, the PSCA book, the 401(k) aver­
ages book, and we try to take the
best out of all of this data and build
something that makes sense, but it is
very strenuous and costly. It would be
much better to have a premier bench­
marking service rather than me gath­
ering books all over my desk.

What we’ve been struggling with a
little, and we’re getting some help from
outside consultants, is benchmarking
our fees as fair and reasonable. NRP
has developed tools based on plan
size. Should you be paid more on
more plan assets? Should it be scale­
able? Should it be a flat fee? Flat fees
actually hurt plan sponsors last year
when the market went down. We had
a plan sponsor that wanted to cap us
at $100,000 for a $100 million plan,
and we said we think it’s more reason­
able to have the first $100 million be
seven basis points, the next $25 million
be six basis points, and so on. That
way, when the plan shrunk in size to
$75 million, our fees were adjusted to a
level that made sense for both parties.

from the 50,000-foot level, what
should a good benchmarking
exercise include?

Kmak: I think the prudent fiduciary is
trying to weigh fees versus value, so
you have to make sure you understand
fees, but not just at the total plan level.
You have to go to the next level and
understand at the service provider
level how those fees are broken down
because, even though total plan fees
may look reasonable, if it’s not propor­
tionally allocated the right way, there is
still liability there. Fred, am I correct in
saying that?

Reish: Yes. There’s a fiduciary respon­
sibility to evaluate the revenue sharing
or the flow of the money within the plan
to see who is getting it. An RIA consul­
tant gave me a perfect example a few
years ago where, on the face, all of the
mutual funds in the plans were reason­
ably priced. This was a very large plan,
but there was one component of the
program that was $1 million dollars
overpriced that they adjusted for the
benefit of the participants. Yet, viewed
on a total cost basis, the plan was
arguably reasonably priced but, in the
example that I just gave, it’s also false.

PA: Tom, from your perspective,

PA: How do you benchmark what’s
happening at the participant level?

Kmak: First and foremost, look at
participation rates. Then, look at the
percentage of salary that’s being
deferred. Also, look at how many
people actually are contributing to the
maximum match. That’s like giving
away free money. So, there are certain
metrics you can look at in terms of
putting money into the plan.